The Toronto condo market is in a pronounced correction, and landowners sitting on infill development sites need to reassess their expectations. Prices for development land surged during the pre-pandemic and pandemic years, peaking around 2021. But since then, the financial model that supported those valuations has unraveled.
Why the Numbers No Longer Work
For much of the 2010s, the condo market was driven by investor demand. Buyers—often small-scale investors—could pre-purchase units, finance them with low interest rates, and rely on both rental income and appreciation. Developers, in turn, could pay high prices for land because they were confident in strong pre-sales.
That model is no longer functional:
- Interest rates are 3–4 points higher than during the boom.
- Construction costs remain elevated and sticky.
- Government fees and taxes (development charges, HST, and land transfer tax) can add over $150,000 to the cost of a typical unit.
- Rents have risen, but not enough to make the economics work.
For developers, this means most new condo projects are not feasible unless condo prices exceed ~$1,200 per square foot—well above what the market can currently bear. Investors can’t generate positive cash flow at these price points with today’s borrowing costs.
How This Affects Land Value
Infill land that once traded at $150–200 per buildable square foot is now being underwritten closer to $70–90 psf in many locations. And even at these prices, many developers are passing. They simply can’t build and sell units at a profit.
Meanwhile, landowners face rising holding costs—particularly those with debt—and increasingly cautious lenders. Municipalities are not expected to significantly reduce development charges, and construction cost relief appears unlikely in the near term.
Could Conditions Improve?
Yes, but it will take time. Lower interest rates, planning reforms, and rising rents may slowly improve the landscape over the next 3–6 years. However, absent major policy shifts—such as waiving development charges or eliminating HST on new builds—the fundamentals won’t return to 2021 levels anytime soon.
Even if rates fall 1–1.5% over the next 18–24 months, other cost inputs and muted buyer sentiment will keep a lid on project feasibility.
A New Market Paradigm
This doesn’t mean development is dead. It means we’re entering a new era:
- More purpose-built rental and institutional partnerships.
- A focus on mid-rise, modular, or missing-middle formats.
- A shift from speculative land banking to pragmatic deal structuring.
The Rational Case for Selling Now
Landowners holding out for 2021 prices may be waiting until the next cycle peak—which could be 8–10 years away. In the meantime, the opportunity cost of carrying underperforming land could be significant.
Selling at today’s market-cleared pricing allows:
- Capital to be redeployed more productively.
- Developers to move forward with purpose-driven projects.
- Reduced exposure to future policy or tax changes.
Final Thought
Markets don’t go in straight lines. The last cycle was long and aggressive. The current cycle will be slower and more disciplined. Recognizing the new fundamentals isn’t pessimism—it’s realism. Landowners who adjust expectations now may be the ones best positioned when the next cycle truly begins.
Sources: CMHC Housing Supply Report (2024), Urbanation Q1 2025 GTA Condo Report, BILD Development Charges Summary, Statistics Canada Building Construction Index.
